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Does deposit insurance increase banking system stability? An empirical investigation

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  • Demirguc-Kunt, Asli
  • Detragiache, Enrica

Abstract

Based on evidence of 61 countries in 1980-97, the authors find that explicit deposit insurance tends to be detrimental to bank stability, the more so where bank interest rates are deregulated and the institutional environment is weak. The adverse impact of deposit insurance on bank stability tends to be stronger the more extensive is the coverage offered to depositors, and where the scheme is funded and run by the government rather than the private sector.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Monetary Economics.

Volume (Year): 49 (2002)
Issue (Month): 7 (October)
Pages: 1373-1406

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Handle: RePEc:eee:moneco:v:49:y:2002:i:7:p:1373-1406

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Web page: http://www.elsevier.com/locate/inca/505566

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References

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  1. Talley, Samuel H. & Mas, Ignacio, 1990. "Deposit insurance in developing countries," Policy Research Working Paper Series 548, The World Bank.
  2. Joseph E. Stiglitz, 1972. "Some Aspects of the Pure Theory of Corporate Finance: Bankruptcies and Take-Overs," Bell Journal of Economics, The RAND Corporation, vol. 3(2), pages 458-482, Autumn.
  3. Demirguc-Kunt, Asli & Huizinga, Harry, 1999. "Market Discipline and Financial Safety Net Design," CEPR Discussion Papers 2311, C.E.P.R. Discussion Papers.
  4. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
  5. Matutes, Carmen & Vives, Xavier, 1996. "Competition for Deposits, Fragility, and Insurance," Journal of Financial Intermediation, Elsevier, vol. 5(2), pages 184-216, April.
  6. G. G. Garcia, 1996. "Deposit Insurance," IMF Working Papers 96/83, International Monetary Fund.
  7. G. G. Garcia, 1999. "Deposit Insurance," IMF Working Papers 99/54, International Monetary Fund.
  8. Calomiris, Charles W., 1999. "Building an incentive-compatible safety net," Journal of Banking & Finance, Elsevier, vol. 23(10), pages 1499-1519, October.
  9. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  10. Cull, Robert, 1998. "How deposit insurance affects financial depth : a cross-country analysis," Policy Research Working Paper Series 1875, The World Bank.
  11. Asli Demirgüç-Kunt & Enrica Detragiache, 1998. "The Determinants of Banking Crises in Developing and Developed Countries," IMF Staff Papers, Palgrave Macmillan, vol. 45(1), pages 81-109, March.
  12. Chari, V V & Jagannathan, Ravi, 1988. " Banking Panics, Information, and Rational Expectations Equilibrium," Journal of Finance, American Finance Association, vol. 43(3), pages 749-61, July.
  13. Caprio, Gerard Jr. & Klingebiel, Daniela, 1996. "Bank insolvencies : cross-country experience," Policy Research Working Paper Series 1620, The World Bank.
  14. Bhattacharya, S. & Boot, A.W.A. & Thakor, A.V., 1995. "The Economics of Bank Regulation," Papers 9516, Centro de Estudios Monetarios Y Financieros-.
  15. Bhattacharya, Sudipto, 1982. " Aspects of Monetary and Banking Theory and Moral Hazard," Journal of Finance, American Finance Association, vol. 37(2), pages 371-84, May.
  16. Joshua D. Angrist, 1991. "Instrumental Variables Estimation of Average Treatment Effects in Econometrics and Epidemiology," NBER Technical Working Papers 0115, National Bureau of Economic Research, Inc.
  17. Amemiya, Takeshi, 1981. "Qualitative Response Models: A Survey," Journal of Economic Literature, American Economic Association, vol. 19(4), pages 1483-1536, December.
  18. Alexander Kyei, 1995. "Deposit Protection Arrangements: A Survey," IMF Working Papers 95/134, International Monetary Fund.
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